Crude oil futures higher on US demand outlook as concerns over Asia persist

0226 GMT: Crude oil futures ticked higher the mid-morning trade in Asia May 28 as positive economic data from the US augured well for oil demand, even as concerns persisted over the pandemic's progression in Asia.

At 10:26 am Singapore time (0226 GMT), the ICE Brent July contract was up 18 cents/b (0.26%) from the previous settle at $69.64/b, while the July NYMEX light sweet crude contract was 29 cents/b (0.43%) higher at $66.85/b.

US initial unemployment claims fell 9% on the week to a 14-month low of 406,000 in the week ended May 22, Department of Labor data released May 27 showed. The decline in claims exceeded market expectations and reinforced the US economic recovery narrative, according to analysts.

Oil and the broader commodities complex also received support from reports that US President Joe Biden will propose a $6 trillion budget for the 2022 fiscal year.

The US' ongoing economic recovery has already been having a positive impact on oil demand, with ANZ analysts saying in a May 28 note: "American drivers [are hitting] the road in increasing numbers... they are now travelling as many miles on interstate highways as they did in 2019."

US driving activity rose 3% to 146.5% of the baseline level in the week ended May 21, the highest level since the index was launched in January 2020, Apple mobility data showed.

ING analysts echoed the positive sentiment, but cautioned that headwinds for the oil complex remain as countries in Asia continue to grapple with mobility restrictions amid a resurgence of coronavirus infections.

"It is important that the market doesn't get too caught up in the rosier demand outlook for the US... a number of countries in Asia appear to be going the wrong way, so instead of seeing an easing in restrictions, we are seeing more tightening," ING's head of commodities strategy Warren Patterson and senior commodities strategist Wenyu Yao said in a May 28 note.

Another downside risk for oil is the ongoing negotiations over the Joint Comprehensive Plan of Action in Vienna, a deal that could see sanctions on Iran's oil sector being lifted, leading to the return of an additional 1 million-2 million b/d to the market.

The prospect of additional Iranian barrels raises questions over the OPEC+ coalition's production plans, which includes scheduled 700,000 b/d and 840,000 b/d production increases in June and July.

Russia's deputy prime minister Alexander Novak said May 26 that the coalition should consider a possible increase in Iranian output when assessing further steps, leading to speculation that the coalition could adjust the production increase planned for July at its June 1 meeting.

Analysts however maintain that this is unlikely, as the bullish demand outlooks in the US and Europe indicate the market is well placed to absorb additional supply from both Iran and the OPEC+.